Expenditure towards CSR activities is an allowable deduction u/s 80G: ITAT

Citation:  Alubond Dacs India (P.) Ltd. v. DCIT

ITAT: Mumbai

ITA no: 3663 of 2024

Assessment Year: 2020-21

Date of Order- May 27, 2024

Brief Facts:

• The assessee has contributed Rs. 30 lacs to various educational and charitable trusts as corporate social responsibility (CSR) for which the assessee has claimed 50% of the total donation paid as deduction under section 80G of the Act.

• The Assessing Officer made disallowance of Rs. 15 lakhs of CSR expenditure which represented 50% of the total donations paid by the assessee under section 80G, on the ground that the CSR expenses were a statutory obligation and not a voluntary donation.

• The Assessing Officer also relied on the insertion of Explanation 2 to section 37(1) of the Act vide Finance (No.2) Act, 2014 wherein it stated that the CSR expenses incurred should not be allowed as ‘business expenditure’ as per the said provision.

Observations of the Tribunal:

The Tribunal made the following observations-

1. Prior to the Finance (No.2) Act, 2014, the CSR expenditure was claimed as 'business expenditure' under section 37(1) of the Act. After the insertion of Explanation 2 to section 37(1) of the Act, the CSR expenses could not be deemed to be an expenditure incurred by the assessee for the purpose of business or profession.

2. Thus, the intention of the legislature was clear that CSR expenses would not fall under the business expenditure. Further, there had been an express bar under section 80G(2)(a)(iiihk)/(iiihl) specifying that any sum paid by the assessee as donation to Swatch Bharat Kosh and Clean Ganga Fund would not come under the purview of deduction under section 80G subject to certain conditions.

3. This justified that the other donations specified under section 80G of the Act would be entitled to deduction provided the conditions stipulated therein were satisfied.

4. The contributions made by the assessee were not covered under sub clause (iiihk) and (iiihl) of section 80G(2)(a).

5. The amendment brought about by Finance Act, 2015 to section 80G of the Act which had inserted the sub clauses (iiihk) and (iiihl) to be the exception for qualifying a donation for claiming under section 80G of the Act could also be an evidencing factor to substantiate that CSR expenditures which were covered under the nature specified in section 30 to 36 of the Act were an allowable deduction u/s 80G of the Act.

Hence, the Tribunal held that the assessee was entitled to a deduction under section 80G in respect of the CSR expenditure incurred by it.